Hard money or ask for seller financing?

3 Replies

Hey everyone!

I'm currently looking at an out of state multi-family package that includes 3 triplexes and 1 duplex for a total of 11 units. The asking price is $327.6K for the entire package with a "little wiggle room to negotiate". Currently, all 11 units are rented out bringing in $4,650 before expenses and cash flowing at $2,050 after expenses (according to my calculations). The seller is also updating things like paint, gutters, and hot water heaters to name a few things. I don't have much money ($5K) but I think I can get more money from family just not enough for a $65,520 (20%) down payment. I have pretty good credit 780 and no debt other than my primary house and car.

My question is should I seek a hard money lender or ask for seller financing? If the answer is hard money lender, is it just about applying to various hard money lenders until I get a yes? If the answer is ask for seller financing, how would I go about asking if the seller is interested in seller financing? I seen the property on Realtor.com and reached out to a realtor for more info so we're in the very beginning of all this. Any advice or tips are greatly appreciated. If I'm over my head I'd like to hear that too. Thanks!

Hey @Johnnie Bembry , welcome to BiggerPockets!

I can't think of a single good reason not to ask for seller financing, always! The worst that can happen is they say "no."

It's all about how you ask. If you say "Can I pay you a tiny down payment and then make monthly payments to you for the next 20 years," most sellers will shut you down before you can even finish talking. However, if instead you say "I can definitely make you an all-cash offer, but if you don't need all your cash proceeds right now, I might be able to pay you a bit more AND there might be some tax advantages to you," you might get the opening you need to at least have a conversation about seller financing.

Your BIG Challenge, though, is going to be the agent's commission. Even if the seller agrees to receive their equity in payments over time, that listing agent is going to want their 3% (or whatever is customary in Vegas) at closing. That means you'll have to come out of pocket for at least that much plus whatever the seller requires as a down payment.

I don't know enough to say whether you're in over your head or not, but I strongly recommend you check your numbers to make sure this deal is as smokin'-hot as you think. I was just in Vegas last week and I consider that market very overbought and heavily trafficked.

If it truly is a home run, you might be better off wholesaling this one to a more experienced investor and then shadowing them as they complete the deal.

@Mitch Messer I appreciate your advice! You're right, the worst he/she can say is "no". In regard to the agent's commission, doesn't the seller normally pay that? Is it different because it would be seller financed? 

I'm in Vegas but this deal is back home in Kansas. I agree everything here in Vegas is overbought and heavily trafficked but everyone is trying to cash in on the Raiders coming to town soon. 

@Johnnie Bembry The seller is contractually responsible for ensuring payment of the commission to the listing agent, but these funds will come off the top from the sale proceeds, which in the case of seller financing will initially just be the down payment.

So, let's assume the listing agent gets 3% of the sale price, or $9,828 ($327.6K * .03). Let's also assume the seller is willing to accept 10% down, or $32,760.

If you close by just bringing your down payment, then once the agent's commission is paid, your seller will only get the $22,932 that's left and they will not be happy!

Instead, you'll want to pay into escrow the total of the commission plus the down payment, or $42,588. This way everyone gets what they were promised.